The DNA of the bacterial chromosome is localized ina compact body called the nucleoid. Bacterial nucleoids have been extensively studied, but the basis of nucleoid stabilization has remained elusive. The nucleoid is immersed in a cytoplasm which is very concentrated in macromolecules, giving a potential for large macromolecular crowding effects. The following results suggest that crowding-enhancement of the interaction between DNA-binding proteins and the cellular DNA may provide an important stabilizing force for the compact form of DNA in the bacterial nucleoid. These results include the first use of concentrated cell extracts to supply a crowded environment in model studies of the mechanisms of DNA compaction within bacterial or other cells. DNA added to concentrated extracts of Escherichia coli undergoes a reversible transition to a readily-sedimentable ("condensed") form. The extract plays two roles in this transition, supplying both DNA-binding protein(s) and a crowded environment that increases protein binding and favors compact DNA conformations. The two roles are based on properties of fractions prepared by absorption of extracts with DNA-cellulose, and are consistent with model studies of condensation by combinations of purified DNA-binding materials (protein HU or spermidine) and concentrated solutions of crowding agents (albumin or PEG 8000); in each case, crowding agents and DNA-binding materials jointly reduced the amounts of each other required for condensation. Condensation of the added DNA molecules caused large increases in the rate of cohesion between their complementary single-stranded termini. Cohesion products of lambda DNA made in vitro are a mixture of linear and circular aggregates, whereas those made in vivo are cyclic monomers. We suggest a simple mechanism based upon consensation at the site of viral injection which may explain this discrepancy.